Obama's False Friends of Health Reform

I'm hoping President Obama realizes that some of the folks who've been currying favor with him are not, as they claim, bringing "solutions" to the health care reform table. Most Americans -- especially those who voted for him -- want nothing to do with the kind of "reforms" they are peddling.

If you watched the president's televised Q&A on ABC last Wednesday night, you probably noticed that one of the people in the audience was Ron Williams, the chairman and CEO of Aetna, Inc., the nation's third largest health insurer, and currently one of the most profitable. But there are a few things that you should know about Williams.

Back in the '90s, Aetna set out on an acquisition binge in its quest to become the biggest health insurer in the country. It got there by the end of the decade after spending billion of dollars for several competitors. By 1999 it had 21 million health plan members, the most any insurer had ever had at the time.

But, as often happens after buying sprees, Aetna soon came down with a bad case of buyers' remorse. As it turned out, some of the customers it had paid top price for were not as profitable as Wall Street analysts and the big institutional investors who owned most of Aetna's stock expected. When they took a closer look at what Aetna had bought, investors started deserting the company in droves. As a result, the company found its stock price in a free fall.

As the Wall Street Journal reported on August 13, 2004, Aetna's pretax profits as a percentage of revenues began falling dramatically after peaking at about 12 percent in 1998. By 2001 the company was a basket case as far as Wall Street was concerned. It had to do something, and fast.

Probably the most important thing it did to turn itself around was recruit Williams from rival WellPoint, the ambitious for-profit company that was gobbling up Blue Cross and Blue Shield plans from coast to coast.

As the Journal reported, Williams promptly ordered a $20 million revamp of Aetna's data systems. Health care analyst Joshua Raskin told the Journal that the new system that emerged from that investment, which Aetna dubbed the Executive Management Information System (EMIS for short), was "the single largest driver of the Aetna turnaround." Why? Because it helped Aetna "identify and dump unprofitable corporate accounts." How did it do the dumping? By jacking up premiums to unaffordable levels.

By the time the dumping -- or purging, as it is frequently called in the industry -- was done, Aetna had shed eight million of its 21 million members. It shrank so much that by the time it emerged from the Ron Williams-led turnaround, it had fewer members than when the company started out on its multi-billion dollar buying binge.

While Aetna was shedding those eight million men, women and children, by the way, it also reportedly shed 15,000 of its employees. Wall Street likes it when insurers dump employees, too, because the workers who don't get the ax have to assume the responsibilities of their laid-off colleagues. That theoretically boosts productivity, which Wall Street likes. And reducing the payroll leaves more money for profits.

The health insurance industry and its allies are working hard right now to convince you that the creation of a public insurance option would put a government bureaucrat between you and your doctor. As the 2004 Wall Street Journal article makes it clear, however, EMIS was at its heart a system that put corporate bureaucrats between people and their doctors. Here's what it saId:

Mr. Williams says EMIS helps him ferret out creeping costs so Aetna can react quickly. Sitting in his first-floor office in Hartford overlooking the Aetna parking lot, he taps on his keyboard to see whether some of the health insurer's members are visiting emergency rooms too much for nonemergency reasons, such as for the flu or a sprained ankle.

Did that send a chill up your spine like it did mine? And know this, if Aetna's CEO can keep an eye on your trips to the doctor, so can the CEOs of all the other big insurers.

The insurance industry claims that this time it really and truly supports legislation to reduce the number of people without insurance, that they've changed so much since 1994 -- when they said the same thing but did everything they could behind the scenes to kill reform -- that you can and should believe them now.

The next time you hear someone from the industry talking about how much they are committed to reform, remember that just a few years ago, the CEO of one of the biggest health insurers was the mastermind behind a business strategy that cost thousands of workers their jobs and millions of other people their insurance coverage. That's the real "solution" the industry is bringing to the table -- and the kind of reform Wall Street can really get behind.

Ron Williams has been richly rewarded by Aetna's board of directors for leading the company back to a level of profitability suitable to Wall Street. They tapped him to succeed Jack Rowe as CEO when Rowe retired in 2006. And they rewarded him with compensation totaling nearly $65 million over the past two years.

(Rowe, by the way, was paid $22.2 million in 2005, his last full year as CEO. He played a big role in hawking the high-deductible plans that Aetna and the other big insurers are now trying to push us all into. He claimed that Americans enrolled in managed care plans have been too sheltered from the real costs of health care and that we need to have more "skin in the game," by which he meant that we should have to pay a lot more out of our own pockets when we go to the doctor and pick up our prescriptions, even if we have health insurance. The median family income in the United States is just $50,000, which means that most of us already have a lot more skin in the game than Dr. Rowe and Ron Williams will ever need to.)

The insurance industry's two biggest lobbying groups -- America's Health Insurance Plans (AHIP) and the Blue Cross and Blue Shield Association of America -- warned members of Congress in a joint letter a few days ago that the creation of a public insurance option would unravel the country's employer-based system.

As they say where I come from, that dog won't hunt.

It is the insurance company executives -- in their never-ending quest to meet Wall Street's profit expectations -- who are doing the unraveling by purging employers whose workers have the audacity to file claims when they get sick or injured.

A final point about Ron Williams: Not only are he and his fellow CEOs trying to kill the idea of a public health insurance option -- a central part of candidate Obama's health care proposal -- but he is the leading advocate of an idea Obama rejected and which differentiated his proposal from Hillary Clinton's -- the imposition on all of us of an "individual mandate." Many insurance executives were wary of such a mandate because they don't like the government mandating anything, especially those pesky state mandates that force them to include certain benefits in the policies they sell. Advocates of an individual mandate eventually brought the skeptics, including many of AHIP's board members, around to their way thinking by persuading them that insurers could make billions more in profits if every American had to buy an insurance policy from them. Now you know the real reason behind AHIP's shift from neutrality on the issue to full-fledged support. It's all about the money.

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The following information is provided to help you understand the biases that may be inherent in this blog.My primary U.S. economic policy concern is the fiscal irresponsibility of government.The Baby Boom generation, which I am part of, has spent the past 30 years accumulating massive public debt that will be passed to our children, grandchildren, and subsequent generations.I am not opposed to the reduction or elimination of any government spending program.Yet, politicians tend to call for reduced spending in general terms and fail to publicly declare specific cuts they would make.The primary cause of the massive U.S. public debt is revenue reductions (in the form of tax cuts) without similar decreases in government spending.

I am willing to consider the expansion and addition of government programs as well.I do not mind how much or little the government provides to society as long as it is paid for.I am willing to pay higher taxes for services deemed worthy, whether they be national defense, homeland security, or income assistance to those less fortunate than I.And I am certainly willing to pay less in taxes or to deposit any government check I receive.My generation, the Baby Boomers, has been very good at cutting taxes and increasing the size of government, regardless of which political party is in power.This is a prescription for financial chaos that remains a horrible legacy for future generations.

About Me

I am a professor of economics at Jacksonville University, where I teach courses in introductory economics, comparative economic development, and globalization. I use this blog to keep in touch with my current and former students. Teachers and students at other schools, as well as others interested in economic issues, are welcome to use this resource.